One size fits all approach might work for the swim flippers my kids use at swim practice. But, for nonprofit organizations searching for an accounting solution, a lack of options for licensing and deployment can prove challenging. We’ve covered some of the research helpful in guiding your organization through this process below. You may also find the Importance of the Right Nonprofit Accounting Software a worthwhile read.
Subscription versus purchase license
In this age of subscription software, why would anyone consider purchasing a traditional perpetual software license? Someone once compared this purchase decision to renting a home versus purchasing a home, a pretty good comparison.
Although applying this analogy is imperfect, it is still useful. We’ll construct a basic comparison as it applies to the software of the total cost of the two options in a five-year investment scenario.
Purchasing a perpetual license
With the purchase of a traditional perpetual license, your nonprofit may pay a large investment up front with an annual cost paid for maintenance and support fees. In other words, you are a “homeowner” and are responsible for maintaining your property.
This allows your organization to apply the regular Abila MIP Fund Accounting™ software updates to your “owned” version. Additionally, you can ensure you have access to the latest upgrades to the software. Many nonprofits, or government agencies, may have access to grant funding for the initial outlay of costs, thus justifying the upfront cost.
Purchasing a subscription license
With a subscription model, you pay a monthly fee for access to the software, meaning you never “own” the software. The monthly cost is all-inclusive. Because of such, there will not be an annual cost for maintenance and support.
Your nonprofit’s access to the latest and greatest software updates and support are included in your monthly fee. You are a renter of the property and the upkeep of that property is built into your monthly rent.
What do the costs look like to purchase a three-user license for the standard modules for MIP? This example has both software purchase options deployed on-site with local IT involved.
|License – a one-time purchase||$12,000||Not applicable|
|Monthly “rent”||Not applicable||$450 per month|
|Annual maintenance and support fee – 24% of license cost||$3,000||Included in monthly “rent”|
|Cost for year one||$15,000||$5,400|
|Cost for year two||$3,000||$5,400|
|Cost for year three||$3,000||$5,400|
|Cost for year four||$3,000||$5,400|
|Cost for year five||$3,000||$5,400|
|Total five-year investment||$27,000||$27,000|
In the example above, a nonprofit organization that purchases the software license instead of leasing will have their investment “paid off” in five years. In comparison, the subscription or “rental” option will continue to pay $5,400 annually. With that being said, other than positive cash flow over a longer period, why would a nonprofit choose to own instead of rent?
One reason is many nonprofits or government agencies may have access to grant funding for the initial outlay of costs, thus justifying the upfront cost. However, funders also recognize that Software as a Service (SaaS) is becoming the dominant model and will adapt to that reality.
Another important factor in making the decision for perpetual license versus subscription is how your organization deploys the software. The above cost comparisons don’t factor in the costs of local IT support nor external hosting of the software by a third-party.
For help on selecting your organization’s best accounting software “home,” click here. You may also find additional helpful articles by visiting our Ultimate Guide to Nonprofit Accounting. Also, for questions on how NFP Partners can assist in determining which software is best for you, email Laura Jorstad at Laura@NFPpartners.com.